Which of the Following Risk-Free, Zero-Coupon Bonds Could Be Bought

question 7

Multiple Choice

Which of the following risk-free, zero-coupon bonds could be bought for the lowest price?

• A) one with a face value of $1,000, a YTM of 4.8%, and 5 years to maturity
• B) one with a face value of $1,000, a YTM of 3.2%, and 8 years to maturity
• C) one with a face value of $1,000, a YTM of 6.8%, and 10 years to maturity
• D) one with a face value of $1,000, a YTM of 5.9%, and 20 years to maturity

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Definitions:

Common Stock Option Warrants

Rights issued to investors to purchase common stock at a specified price within a predefined time frame, potentially diluting existing shareholders.

Treasury Stock

Shares that were issued and later reacquired by the corporation, reducing the amount of outstanding stock on the open market.

Voting Rights

The entitlement of shareholders to vote on company matters, typically exercised at annual meetings or special resolutions, often proportional to the number of shares held.

Stock Splits

A corporate action where a company divides its existing stock into multiple shares to boost the liquidity of the shares.